“We reject the ideology of Globalization and embrace Patriotism,’’ Trump said, when he took the podium at the UNGA.
This statement by Trump surely wouldn’t have shocked the world, as the world has become accustomed to unusual happenings since Donald Trump assumed power in the United States.
From the immigration ban to threatening North Korea, entering in a trade war with China to freezing aid to Pakistan, torpedoing JCPOA to leaving the Paris Climate agreement; the world has witnessed strange trends, because of him.
A Republican President who succeeded Barack Obama, entered the white house with the resolute intention of ‘America First’. By fulfilling his maxim, he even negated the trends and policies of his predecessors.
In the wake of World War II, the renowned landmark deal ‘Bretton Woods’ among the Allied Powers concluded with the idea of warding off trade wars among the nations. During the Bretton Woods deal two influential organizations — the IMF and the World Bank were created.
The purpose of the formation of these two organisations was to get rid of mercantilism, which is a kind of economic nationalism. Mercantilism is an economic model of any state, which limits international trade. It is also the driving factor behind the intensification of the Great Depression, which beset the US during 1930. Countries began to impose tariffs on each other’s imports, which resulted in a fall in the world trade up to 65 percent. Owing to this trade, countries crippled their economy and thus the international trade out-phased in between 1930-1940.
This trend injected fear among Allied Powers, and they witnessed limited trade as a scourge to global trade. Thus, they were keen to form the IMF and the World Bank, to promote the world trade in a semblance of Globalization.
The maverick economist of 18th century Adam Smith also condemned the idea of trade-wars as he believed in mutual trade between the countries. The cerebral Adam Smith demonstrated in his book ‘The Wealth of Nations’ that trade is mutually beneficial when countries specialize in producing the goods they are best at making.
Even the World Treaty Organization, which replaced the General Agreement on Tariffs and Trade in 1994, endorses the idea of liberalizing trade free from disputes.
But the trends of international trade and globalization have been endangered, particularly in the US, when Trump declared a trade war with China; claiming that the influx of imports from China and other countries are making the population redundant, thus posing a threat to the US’ economy. For this reason, Trump imposed heavy tariffs on Chinese exports to the US.
However, China is not only the country which has been affected by the tariffs; Europe, Mexico, and Canada as well, joined China in the trade war. The US ignited the war by imposing tariffs on the steel and other imports coming from the countries mentioned above.
On the other hand, retaliation by China was also immediate. China slapped a tariff on US exports to China like soybeans, planes, cars, and jeans etc. In the same vein, Canada seems unwilling to be bullied; it retaliated with a 25 percent tariff on $12 billion of the US goods. Another feature that mercantilism exhibits is immigration since foreigners consume the jobs of indigenous people. Thus, Trump promised to build a wall along the Mexican border to halt infiltration of the people.
Trump since his election campaign has been the flag-bearer of reducing international trade. From the very beginning, he seems to be cursing other nations and blaming them. Moreover, in his recent speech, while being at the podium of the UNGA, he condemned the ideology of globalisation. He accused China of creating an imbalance in trade with an influx of imports to the US.
From the very beginning, he seems to be cursing other nations and blaming them. Moreover, in his recent speech, at the UNGA, he condemned the ideology of globalisation. He accused China of creating an imbalance in trade with an influx of imports to the US
As of 2017, the trade deficit of the U.S with China was $ 315 billion. Trump has accused China of this budget deficit by talking about it on twitter, “Tariffs are working big time. Every country on earth wants to take wealth out of the US, always to our detriment. I say, as they come, tax them”. He also added, “If they don’t want to be taxed, let them make or build the product in the US. In either event, it means jobs and great wealth”.
The course of history is witness to the fact that the trade war didn’t benefit the countries which ignited it. Amidst the Great Depression, the policy adopted by the Congress in the form of the Smoot-Hawley Act deepened the effects of the Great Depression. Likewise, between 2002 and 2005 the US president George W. Bush imposed tariffs on steel which resulted in inflation, loss of 200,000 jobs and a fall in the economy.
And right now the outmoded economic policy namely mercantilism that supported the regulation of imports in the past, has taken the flat coat. At this age of globalization when countries have interconnected links in the trade have been eclipsed by trade wars. However, Trump with his pro-tariff policies, to halt the surge in U.S imports has substantiated his populist approach. The IMF has expressed its woes on the score as well by saying; Trump’s trade war with China and Europe will hit global growth.
In the history, there is not a winner in trade wars, since it harms all the participants and the rest of the world as well. Trump should learn from the past and not indulge in harmful practices.
The writer can be reached at [email protected]
Published in Daily Times, October 21st 2018.